Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<p>The life of <a href="https://www.smartkarma.com/entities/line-corp" target="_blank" data-smartkarma-citation="entities:22772:1" rel="noopener">LINE Corp (3938 JP)</a> as a listed entity with a listed future is now entering its Zombie Twilight. The Tender Offer by <a href="https://www.smartkarma.com/entities/softbank-corp" target="_blank" data-smartkarma-citation="entities:27445:1" rel="noopener">Softbank Corp (9434 JP)</a> and <a href="https://www.smartkarma.com/entities/naver-corp" target="_blank" data-smartkarma-citation="entities:16029:1" rel="noopener">Naver Corp (035420 KS)</a> to buy out minorities has ended and we now move on to the next stage. </p><p>Today the results of the Tender Offer for LINE were <a href="https://d.line-scdn.net/stf/linecorp/en/ir/all/LINE_20200916_EN_3.pdf" target="_blank" rel="noopener">announced</a> and the Offerors managed to acquire a sum total of 31,234,670 shares leaving about 25,000,000 shares left over un-tendered (plus options and converts un-converted). That is 25,000,000 million shares worth of zombie shareholders who will roam the markets until the shares' final retirement after the EGM. </p><p>That is $1.25bn+ worth of zombies at the Tender Offer Price. </p><p>The now-zombies defended their boundary, keeping the shares above the ¥5380 Tender Offer Price line from late June until the day before the Tender Offer went ex-.</p><p> </p><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/159/330/original/Screenshot%202020-09-16%20at%204.03.18%20PM.png?1600243413" class="editor-image img-responsive" data-smartkarma-image-id="159330"></figure><p></p><p>The period between now and the delisting of LINE could be 4-5 months. It could take 5-6 months to get one's money, unless one is going after appraisal rights. Then it will take a little longer, unless it takes a lot longer. </p><p>This situation is different from the post-Tender trading situation of <a href="https://www.smartkarma.com/entities/familymart-co-ltd" target="_blank" data-smartkarma-citation="entities:320:1" rel="noopener">FamilyMart Co Ltd (8028 JP)</a> and one should not expect the squeeze which happened there. </p><div>
<hr>
<p>Previous insights related to this situation and the names involved are listed below.</p>
</div><div><table class="table table-striped"><tbody>
<tr><td colspan="3" style="width: 724px;"><h2>Relevant Insights</h2></td></tr>
<tr>
<td style="width: 122px;"><strong>Date</strong></td>
<td style="width: 97px;"><strong>Author</strong></td>
<td style="width: 463px;"><strong>Title</strong></td>
</tr>
<tr><td colspan="3" style="width: 724px;"><h3>About Cashless Payments</h3></td></tr>
<tr>
<td style="width: 122px;">13 Mar 2019</td>
<td style="width: 97px;">
<a href="https://www.smartkarma.com/profiles/michael-causton" target="_blank" data-smartkarma-citation="accounts:2415" rel="noopener">Michael Causton</a> </td>
<td style="width: 463px;">
<a href="https://www.smartkarma.com/insights/loyalty-points-in-japan-more-loyalty-more-points-and-the-conduit-to-cashless-payments" target="_blank" data-smartkarma-citation="insights:28547" rel="noopener">Loyalty Points In Japan: More Loyalty, More Points and the Conduit to Cashless Payments</a> </td>
</tr>
<tr>
<td style="width: 122px;">2 Apr 2019</td>
<td style="width: 97px;">
<a href="https://www.smartkarma.com/profiles/mio-kato-cfa" target="_blank" data-smartkarma-citation="accounts:713" rel="noopener">Mio Kato, CFA</a> </td>
<td style="width: 463px;">
<a href="https://www.smartkarma.com/insights/mercari-why-mercari-is-likely-to-be-a-winner-in-the-cashless-wars" target="_blank" data-smartkarma-citation="insights:28946" rel="noopener">Mercari: Why Mercari Is Likely to Be a Winner in the Cashless Wars</a> </td>
</tr>
<tr>
<td style="width: 122px;">28 Jun 2019</td>
<td style="width: 97px;">
<a href="https://www.smartkarma.com/profiles/supun-walpola" target="_blank" data-smartkarma-citation="accounts:1650" rel="noopener">Supun Walpola</a> </td>
<td style="width: 463px;">
<a href="https://www.smartkarma.com/insights/paying-with-paypay-a-deep-dive-into-yahoo-japan-s-mobile-payment-business" target="_blank" data-smartkarma-citation="insights:30750" rel="noopener">Paying with PayPay: A Deep Dive into Yahoo! Japan’s Mobile Payment Business</a> </td>
</tr>
<tr>
<td style="width: 122px;">6 Jan 2020</td>
<td style="width: 97px;">
<a href="https://www.smartkarma.com/profiles/michael-causton" target="_blank" data-smartkarma-citation="accounts:2415" rel="noopener">Michael Causton</a> </td>
<td style="width: 463px;">
<a href="https://www.smartkarma.com/insights/lawson-and-kddi-join-forces-in-cashless-payments-war" target="_blank" data-smartkarma-citation="insights:35596" rel="noopener">Lawson and KDDI Join Forces in Cashless Payments War</a> </td>
</tr>
<tr>
<td style="width: 122px;">24 Jan 2020</td>
<td style="width: 97px;">
<a href="https://www.smartkarma.com/profiles/michael-causton" target="_blank" data-smartkarma-citation="accounts:2415" rel="noopener">Michael Causton</a> </td>
<td style="width: 463px;">
<a href="https://www.smartkarma.com/insights/mercari-merpay-acquisition-of-origami-pay-continues-cashless-consolidation" target="_blank" data-smartkarma-citation="insights:36051" rel="noopener">Mercari – Merpay Acquisition of Origami Pay Continues Cashless Consolidation</a> </td>
</tr>
<tr>
<td style="width: 122px;">15 Feb 2020</td>
<td style="width: 97px;">
<a href="https://www.smartkarma.com/profiles/michael-causton" target="_blank" data-smartkarma-citation="accounts:2415" rel="noopener">Michael Causton</a> </td>
<td style="width: 463px;">
<a href="https://www.smartkarma.com/insights/japan-payment-wars-ntt-docomo-and-merpay-origami-to-attempt-catch-up-with-paypay-and-rakuten" target="_blank" data-smartkarma-citation="insights:36609" rel="noopener">Japan Payment Wars: NTT Docomo and Merpay/Origami to Attempt Catch up with PayPay and Rakuten</a> </td>
</tr>
<tr>
<td style="width: 122px;">20 Mar 2020</td>
<td style="width: 97px;">
<a href="https://www.smartkarma.com/profiles/michael-causton" target="_blank" data-smartkarma-citation="accounts:2415" rel="noopener">Michael Causton</a> </td>
<td style="width: 463px;">
<a href="https://www.smartkarma.com/insights/some-resistance-to-cashless-payments-in-japan" target="_blank" data-smartkarma-citation="insights:37629" rel="noopener">Some Resistance to Cashless Payments in Japan</a> </td>
</tr>
<tr>
<td style="width: 122px;">28 Apr 2020</td>
<td style="width: 97px;">
<a href="https://www.smartkarma.com/profiles/michael-causton" target="_blank" data-smartkarma-citation="accounts:2415" rel="noopener">Michael Causton</a> </td>
<td style="width: 463px;">
<a href="https://www.smartkarma.com/insights/z-holdings-and-yamato-create-fulfilment-service-for-all-to-rival-rakuten-and-amazon" target="_blank" data-smartkarma-citation="insights:38797" rel="noopener">Z Holdings and Yamato Create Fulfilment Service for All to Rival Rakuten and Amazon</a> </td>
</tr>
<tr>
<td style="width: 122px;">29 Jul 2020</td>
<td style="width: 97px;">
<a href="https://www.smartkarma.com/profiles/supun-walpola" target="_blank" data-smartkarma-citation="accounts:1650" rel="noopener">Supun Walpola</a> </td>
<td style="width: 463px;">
<a href="https://www.smartkarma.com/insights/z-holdings-alt-data-paypay-mall-and-paypay-flea-market-continue-to-disappoint" target="_blank" data-smartkarma-citation="insights:41671" rel="noopener">Z Holdings [Alt Data]: PayPay Mall and PayPay Flea Market Continue to Disappoint</a> </td>
</tr>
<tr><td colspan="3" style="width: 724px;"></td></tr>
<tr><td colspan="3" style="width: 724px;"><h3>About This Deal</h3></td></tr>
<tr>
<td style="width: 122px;">14 Nov 2019</td>
<td style="width: 97px;">Travis Lundy</td>
<td style="width: 463px;">
<a href="https://www.smartkarma.com/insights/z-and-line-sitting-in-a-tree-m-e-r-g-i-n-g" target="_blank" data-smartkarma-citation="insights:34463" rel="noopener">Z and LINE, Sitting in a Tree... M.E.R.G.I.N... G...?</a> </td>
</tr>
<tr>
<td style="width: 122px;">18 Nov 2019</td>
<td style="width: 97px;">Travis Lundy</td>
<td style="width: 463px;">
<a href="https://www.smartkarma.com/insights/line-and-z-sitting-in-a-tree-m-e-r-g-i-n-g-and-a-tender-offer" target="_blank" data-smartkarma-citation="insights:34560" rel="noopener">LINE and Z, Sitting in a Tree... M.E.R.G.I.N.G! And a Tender Offer!</a> </td>
</tr>
<tr>
<td style="width: 122px;">26 Dec 2019</td>
<td style="width: 97px;">Travis Lundy</td>
<td style="width: 463px;"><a href="https://www.smartkarma.com/insights/new-deal-for-line-a-lot-like-the-old-deal" target="_blank" rel="noopener">NEW Deal for LINE (A Lot Like the Old Deal)</a></td>
</tr>
<tr>
<td style="width: 122px;">6 July 2020</td>
<td style="width: 97px;">Travis Lundy</td>
<td style="width: 463px;">
<a href="https://www.smartkarma.com/insights/market-is-pricing-a-line-bump-should-it" target="_blank" data-smartkarma-citation="insights:40976" rel="noopener">Market Is Pricing a LINE Bump - Should It?</a> </td>
</tr>
<tr>
<td style="width: 122px;">22 July 2020</td>
<td style="width: 97px;">Travis Lundy</td>
<td style="width: 463px;">
<a href="https://www.smartkarma.com/insights/a-line-bump-the-other-argument-against" target="_blank" data-smartkarma-citation="insights:41419" rel="noopener">A LINE Bump - The Other Argument Against</a> </td>
</tr>
<tr>
<td style="width: 122px;">29 July 2020</td>
<td style="width: 97px;">Travis Lundy</td>
<td style="width: 463px;">
<a href="https://www.smartkarma.com/insights/line-3938-this-is-not-the-kitchen-sink-you-are-looking-for" target="_blank" data-smartkarma-citation="insights:41674" rel="noopener">LINE (3938) - This Is Not the Kitchen Sink You Are Looking For</a> </td>
</tr>
<tr>
<td style="width: 122px;">3 August 2020</td>
<td style="width: 97px;">Travis Lundy</td>
<td style="width: 463px;">
<a href="https://www.smartkarma.com/insights/the-end-of-the-line-3938" target="_blank" data-smartkarma-citation="insights:41828" rel="noopener">The End of the LINE (3938)</a> </td>
</tr>
</tbody></table></div><div><p><em>In addition to the above insights, Michael Causton's <a href="https://www.smartkarma.com/insights/the-zozo-revival-a-new-private-brand-of-many-names-category-expansion-merchants-return" target="_blank" data-smartkarma-citation="insights:41520" rel="noopener">The Zozo Revival: A New Private Brand of Many Names, Category Expansion, Merchants Return</a> is worth a read to know more about Z Holdings going forward and <a href="https://www.smartkarma.com/profiles/mio-kato-cfa" target="_blank" data-smartkarma-citation="accounts:713" rel="noopener">Mio Kato, CFA</a>'s <a href="https://www.smartkarma.com/insights/zozo-nice-results-but-it-s-just-a-covid-bump" target="_blank" data-smartkarma-citation="insights:41718" rel="noopener">Zozo – Nice Results but It’s Just a COVID Bump</a> takes the view that results announced last week were less impressive than the headline numbers.</em></p></div>

The life of LINE Corp (3938 JP) as a listed entity with a listed future is now entering its Zombie Twilight. The Tender Offer by Softbank Corp (9434 JP) and Naver Corp (035420 KS) to buy out minorities has ended and we now move on to the next stage. Today the results of the Tender Offer for LINE were announced and the Offerors managed to acquire a sum total of 31,234,670 shares leaving about 25,000,000 shares left over un-tendered (plus options and converts un-converted). That is 25,000,000 million shares worth of zombie shareholders who will roam the markets until the shares' final retirement after the EGM. That is $1.25bn+ worth of zombies at the Tender Offer Price. The now-zombies defended their boundary, keeping the shares above the ¥5380 Tender Offer Price line from late June until the day before the Tender Offer went ex-. The period between now and the delisting of LINE could be 4-5 months. It could take 5-6 months to get one's money, unless one is going after appraisal rights. Then it will take a little longer, unless it takes a lot longer. This situation is different from the post-Tender trading situation of FamilyMart Co Ltd (8028 JP) and one should not expect the squeeze which happened there. 

Previous insights related to this situation and the names involved are listed below.

Relevant Insights

Date
Author
Title

About Cashless Payments

13 Mar 2019

Michael Causton 

Loyalty Points In Japan: More Loyalty, More Points and the Conduit to Cashless Payments 


2 Apr 2019

Mio Kato, CFA 

Mercari: Why Mercari Is Likely to Be a Winner in the Cashless Wars 


28 Jun 2019

Supun Walpola 

Paying with PayPay: A Deep Dive into Yahoo! Japan’s Mobile Payment Business 


6 Jan 2020

Michael Causton 

Lawson and KDDI Join Forces in Cashless Payments War 


24 Jan 2020

Michael Causton 

Mercari – Merpay Acquisition of Origami Pay Continues Cashless Consolidation 


15 Feb 2020

Michael Causton 

Japan Payment Wars: NTT Docomo and Merpay/Origami to Attempt Catch up with PayPay and Rakuten 


20 Mar 2020

Michael Causton 

Some Resistance to Cashless Payments in Japan 


28 Apr 2020

Michael Causton 

Z Holdings and Yamato Create Fulfilment Service for All to Rival Rakuten and Amazon 


29 Jul 2020

Supun Walpola 

Z Holdings [Alt Data]: PayPay Mall and PayPay Flea Market Continue to Disappoint 


About This Deal

14 Nov 2019
Travis Lundy

Z and LINE, Sitting in a Tree... M.E.R.G.I.N... G...? 


18 Nov 2019
Travis Lundy

LINE and Z, Sitting in a Tree... M.E.R.G.I.N.G! And a Tender Offer! 


26 Dec 2019
Travis Lundy
NEW Deal for LINE (A Lot Like the Old Deal)


6 July 2020
Travis Lundy

Market Is Pricing a LINE Bump - Should It? 


22 July 2020
Travis Lundy

A LINE Bump - The Other Argument Against 


29 July 2020
Travis Lundy

LINE (3938) - This Is Not the Kitchen Sink You Are Looking For 


3 August 2020
Travis Lundy

The End of the LINE (3938) 

In addition to the above insights, Michael Causton's The Zozo Revival: A New Private Brand of Many Names, Category Expansion, Merchants Return is worth a read to know more about Z Holdings going forward and Mio Kato, CFA's Zozo – Nice Results but It’s Just a COVID Bump takes the view that results announced last week were less impressive than the headline numbers.

Korea / Special Situations, Clepsydra Capital

Sanghyun Park

Korea / Special Situations

Equity Capital Markets

<p>We all know the EV/EBITDA approach can be very misleading in the Big Hit IPO.</p><p>So, let's make a more reasonable approach with PER.</p><p>Korea has three major entertainment talent agencies. They are often called Big Three.</p><ul>
<li>
<a href="https://www.smartkarma.com/entities/s-m-entertainment-co" target="_blank" data-smartkarma-citation="entities:3500:1" rel="noopener">S.M.Entertainment Co (041510 KS)</a> </li>
<li>
<a href="https://www.smartkarma.com/entities/yg-entertainment-inc" target="_blank" data-smartkarma-citation="entities:16138:1" rel="noopener">YG Entertainment (122870 KS)</a> </li>
<li><a href="https://www.smartkarma.com/entities/jyp-entertainment-corp" target="_blank" data-smartkarma-citation="entities:17598:1" rel="noopener">JYP Entertainment (035900 KS)</a></li>
</ul><p>Below is the PER comparison on FY20 projected earnings. The upper end of the indicative price band sets the PER at 69x, which is much lower than SM and YG. </p><table class="table table-striped">
<colgroup>
<col width="200">
<col width="100">
<col width="100">
<col width="96">
<col width="96">
<col width="96">
<col width="96">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"PERs/FY20E earnings (₩B)"}'>PERs/FY20E earnings (₩B)</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Sales"}'>Sales</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"OP"}'>OP</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Earnings"}'>Earnings</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"PER"}'>PER (x)</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"OPM"}'>OPM</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"NPM"}'>NPM</td>
</tr>
<tr>
<td data-sheets-formula='=googlefinance(R[0]C[9], "name")' data-sheets-value='{"1":2,"2":"SM Entertainment Co Ltd"}'>SM Entertainment Co Ltd</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":569}'>569.0</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":37.3}'>37.3</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":10.2}'>10.2</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[4]/R[0]C[3]" data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}' data-sheets-value='{"1":3,"3":87.47769980882353}'><strong>87.48</strong></td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[-3]/R[0]C[-4]" data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-value='{"1":3,"3":0.06555360281195079}'>6.56%</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[-3]/R[0]C[-5]" data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-value='{"1":3,"3":0.017926186291739893}'>1.79%</td>
</tr>
<tr>
<td data-sheets-formula='=googlefinance(R[0]C[9], "name")' data-sheets-value='{"1":2,"2":"YG Entertainment Inc"}'>YG Entertainment Inc</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":237}'>237.0</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":8.3}'>8.3</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":10.3}'>10.3</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[4]/R[0]C[3]" data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}' data-sheets-value='{"1":3,"3":103.03534913592232}'><strong>103.04</strong></td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[-3]/R[0]C[-4]" data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-value='{"1":3,"3":0.035021097046413506}'>3.50%</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[-3]/R[0]C[-5]" data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-value='{"1":3,"3":0.04345991561181435}'>4.35%</td>
</tr>
<tr>
<td data-sheets-formula='=googlefinance(R[0]C[9], "name")' data-sheets-value='{"1":2,"2":"JYP Entertainment Corp"}'>JYP Entertainment Corp</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":137.4}'>137.4</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":41}'>41.0</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":30.7}'>30.7</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[4]/R[0]C[3]" data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}' data-sheets-value='{"1":3,"3":46.94456596742671}'><strong>46.94</strong></td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[-3]/R[0]C[-4]" data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-value='{"1":3,"3":0.29839883551673946}'>29.84%</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[-3]/R[0]C[-5]" data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-value='{"1":3,"3":0.22343522561863172}'>22.34%</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Big Hit (1H×2/upper)"}'>Big Hit (1H×2/upper)</td>
<td style="text-align: right;" data-sheets-formula="=Pricing!R[54]C[0]*2" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":587.991592}'>588.0</td>
<td style="text-align: right;" data-sheets-formula="=Pricing!R[55]C[-1]*2" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":99.50966}'>99.5</td>
<td style="text-align: right;" data-sheets-formula="=Pricing!R[56]C[-2]*2" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":66.339512}'>66.3</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[4]/R[0]C[3]" data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}' data-sheets-value='{"1":3,"3":68.87653801251959}'><strong>68.88</strong></td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[-3]/R[0]C[-4]" data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-value='{"1":3,"3":0.1692365356135909}'>16.92%</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[-3]/R[0]C[-5]" data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-value='{"1":3,"3":0.11282391262492747}'>11.28%</td>
</tr>
<tr><td colspan="7" rowspan="1" data-sheets-value='{"1":2,"2":"Source: KRX &amp; FnGuide"}'><em>Source: KRX &amp; FnGuide</em></td></tr>
</tbody>
</table><p>But this is misleading because SM and YG's earnings for this year aren't aligned with a normalized level.</p><p>Below is the 12M forward PER comparison, which should be a more normalized picture.</p><p>Big Hit's 12M earnings band is ₩75~90B. At the upper end of the indicative price band, the PER range is 51~61x.</p><table class="table table-striped">
<colgroup>
<col width="100">
<col width="100">
<col width="100">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"PERs/FY21E earnings (₩B)"}'>PERs/FY21E earnings (₩B)</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Earnings"}'>Earnings</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"PER (x)"}'>PER (x)</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Big Hit (12M lower)"}'>Big Hit (12M lower)</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":75}'>75.0</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":60.92}'><strong>60.92</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Big Hit (12M mid)"}'>Big Hit (12M mid)</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":82.5}'>82.5</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":55.38}'><strong>55.38</strong></td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":"Big Hit (12M upper)"}'>Big Hit (12M upper)</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":90}'>90.0</td>
<td style="text-align: right;" data-sheets-value='{"1":3,"3":50.77}'><strong>50.77</strong></td>
</tr>
<tr><td colspan="3" rowspan="1" data-sheets-value='{"1":2,"2":"Source: KRX &amp; FnGuide"}'><em>Source: KRX &amp; FnGuide</em></td></tr>
</tbody>
</table><p>At the mid-level (₩82.5B), the 12M PER range on the indicative price band is 43~55x, which is acceptably higher than the three direct valuation peers.</p><p>But things can get crazy once we see the same pattern as the previous two IPOs (SKBP and Kakao G). At 2x the upper end, 12M PER will soar to 111x, which is about 3x the local peer average.</p><table class="table table-striped">
<colgroup>
<col width="200">
<col width="100">
<col width="100">
<col width="96">
<col width="96">
<col width="96">
<col width="96">
</colgroup>
<tbody>
<tr>
<td data-sheets-value='{"1":2,"2":"12M PER (₩B)"}'>12M PER (₩B)</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"12M PER (x)"}'>12M PER (x)</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Price"}'>Price</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"MC"}'>MC</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"TP"}'>TP</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Δ"}'>Δ</td>
<td style="text-align: right;" data-sheets-value='{"1":2,"2":"Coverage"}'>Coverage</td>
</tr>
<tr>
<td data-sheets-formula="=R[-16]C[0]" data-sheets-value='{"1":2,"2":"SM Entertainment Co Ltd"}'>SM Entertainment Co Ltd</td>
<td style="text-align: right;" data-sheets-formula="=R[-16]C[9]" data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}' data-sheets-value='{"1":3,"3":28.78}'><strong>28.78</strong></td>
<td style="text-align: right;" data-sheets-formula="=R[-16]C[6]" data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-value='{"1":3,"3":37950}'>₩37,950</td>
<td style="text-align: right;" data-sheets-formula='=googlefinance(R[-16]C[6], "marketcap")/1000000000' data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":891.100038}'>891.1</td>
<td style="text-align: right;" data-sheets-formula="=R[-16]C[7]" data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-value='{"1":3,"3":46800}'>₩46,800</td>
<td style="text-align: right;" data-sheets-formula="=(R[0]C[-1]-R[0]C[-3])/R[0]C[-3]" data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-value='{"1":3,"3":0.233201581027668}'>23.32%</td>
<td style="text-align: right;" data-sheets-formula="=R[-16]C[6]" data-sheets-numberformat='{"1":2,"2":"0"}' data-sheets-value='{"1":3,"3":10}'>10</td>
</tr>
<tr>
<td data-sheets-formula="=R[-16]C[0]" data-sheets-value='{"1":2,"2":"YG Entertainment Inc"}'>YG Entertainment Inc</td>
<td style="text-align: right;" data-sheets-formula="=R[-16]C[9]" data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}' data-sheets-value='{"1":3,"3":45.4}'><strong>45.40</strong></td>
<td style="text-align: right;" data-sheets-formula="=R[-16]C[6]" data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-value='{"1":3,"3":58500}'>₩58,500</td>
<td style="text-align: right;" data-sheets-formula='=googlefinance(R[-16]C[6], "marketcap")/1000000000' data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":1068.595275}'>1,068.6</td>
<td style="text-align: right;" data-sheets-formula="=R[-16]C[7]" data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-value='{"1":3,"3":55250}'>₩55,250</td>
<td style="text-align: right;" data-sheets-formula="=(R[0]C[-1]-R[0]C[-3])/R[0]C[-3]" data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-value='{"1":3,"3":-0.05555555555555555}'>-5.56%</td>
<td style="text-align: right;" data-sheets-formula="=R[-16]C[6]" data-sheets-numberformat='{"1":2,"2":"0"}' data-sheets-value='{"1":3,"3":8}'>8</td>
</tr>
<tr>
<td data-sheets-formula="=R[-16]C[0]" data-sheets-value='{"1":2,"2":"JYP Entertainment Corp"}'>JYP Entertainment Corp</td>
<td style="text-align: right;" data-sheets-formula="=R[-16]C[9]" data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}' data-sheets-value='{"1":3,"3":35.99}'><strong>35.99</strong></td>
<td style="text-align: right;" data-sheets-formula="=R[-16]C[6]" data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-value='{"1":3,"3":40750}'>₩40,750</td>
<td style="text-align: right;" data-sheets-formula='=googlefinance(R[-16]C[6], "marketcap")/1000000000' data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":1446.522799}'>1,446.5</td>
<td style="text-align: right;" data-sheets-formula="=R[-16]C[7]" data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-value='{"1":3,"3":43722}'>₩43,722</td>
<td style="text-align: right;" data-sheets-formula="=(R[0]C[-1]-R[0]C[-3])/R[0]C[-3]" data-sheets-numberformat='{"1":3,"2":"0.00%","3":1}' data-sheets-value='{"1":3,"3":0.07293251533742331}'>7.29%</td>
<td style="text-align: right;" data-sheets-formula="=R[-16]C[6]" data-sheets-numberformat='{"1":2,"2":"0"}' data-sheets-value='{"1":3,"3":9}'>9</td>
</tr>
<tr><td colspan="7" rowspan="1" style="text-align: left;" data-sheets-value='{"1":2,"2":"Big Hit (12M mid)"}'><strong>Big Hit (12M mid)</strong></td></tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Lower"}'>- Lower</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[1]/R13C8" data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}' data-sheets-value='{"1":3,"3":43.076971636363645}'><strong>43.08</strong></td>
<td style="text-align: right;" data-sheets-formula="=Pricing!R[-20]C[-1]" data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-value='{"1":3,"3":105000}'>₩105,000</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[-1]*Terms!R46C4/1000000000" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":3553.85016}'>3,553.9</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Upper"}'>- Upper</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[1]/R13C8" data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}' data-sheets-value='{"1":3,"3":55.38467781818183}'><strong>55.38</strong></td>
<td style="text-align: right;" data-sheets-formula="=Pricing!R[-21]C[1]" data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-value='{"1":3,"3":135000}'>₩135,000</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[-1]*Terms!R46C4/1000000000" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":4569.23592}'>4,569.2</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Upper×2"}'>- Upper×2</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[1]/R13C8" data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}' data-sheets-value='{"1":3,"3":110.76935563636366}'><strong>110.77</strong></td>
<td style="text-align: right;" data-sheets-formula="=R[-1]C[0]*2" data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-value='{"1":3,"3":270000}'>₩270,000</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[-1]*Terms!R46C4/1000000000" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":9138.47184}'>9,138.5</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Upper×2×1.3"}'>- Upper×2×1.3</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[1]/R13C8" data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}' data-sheets-value='{"1":3,"3":144.00016232727273}'><strong>144.00</strong></td>
<td style="text-align: right;" data-sheets-formula="=R[-1]C[0]*1.3" data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-value='{"1":3,"3":351000}'>₩351,000</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[-1]*Terms!R46C4/1000000000" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":11880.013392}'>11,880.0</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
</tr>
<tr>
<td data-sheets-value='{"1":2,"2":" - Upper×2×1.3×1.3"}'>- Upper×2×1.3×1.3</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[1]/R13C8" data-sheets-numberformat='{"1":2,"2":"#,##0.00","3":1}' data-sheets-value='{"1":3,"3":187.20021102545456}'><strong>187.20</strong></td>
<td style="text-align: right;" data-sheets-formula="=R[-1]C[0]*1.3" data-sheets-numberformat='{"1":4,"2":"[$₩]#,##0","3":1}' data-sheets-value='{"1":3,"3":456300}'>₩456,300</td>
<td style="text-align: right;" data-sheets-formula="=R[0]C[-1]*Terms!R46C4/1000000000" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":3,"3":15444.0174096}'>15,444.0</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
<td style="text-align: right;" data-sheets-numberformat='{"1":2,"2":"#,##0.0"}' data-sheets-value='{"1":2,"2":"-"}'>-</td>
</tr>
<tr><td colspan="7" rowspan="1" data-sheets-value='{"1":2,"2":"Source: KRX &amp; FnGuide"}'><em>Source: KRX &amp; FnGuide</em></td></tr>
</tbody>
</table>

We all know the EV/EBITDA approach can be very misleading in the Big Hit IPO.So, let's make a more reasonable approach with PER.Korea has three major entertainment talent agencies. They are often called Big Three.

S.M.Entertainment Co (041510 KS) 

YG Entertainment (122870 KS) 
JYP Entertainment (035900 KS)
Below is the PER comparison on FY20 projected earnings. The upper end of the indicative price band sets the PER at 69x, which is much lower than SM and YG. 











PERs/FY20E earnings (₩B)
Sales
OP
Earnings
PER (x)
OPM
NPM


SM Entertainment Co Ltd
569.0
37.3
10.2
87.48
6.56%
1.79%


YG Entertainment Inc
237.0
8.3
10.3
103.04
3.50%
4.35%


JYP Entertainment Corp
137.4
41.0
30.7
46.94
29.84%
22.34%


Big Hit (1H×2/upper)
588.0
99.5
66.3
68.88
16.92%
11.28%

Source: KRX &amp; FnGuide

But this is misleading because SM and YG's earnings for this year aren't aligned with a normalized level.Below is the 12M forward PER comparison, which should be a more normalized picture.Big Hit's 12M earnings band is ₩75~90B. At the upper end of the indicative price band, the PER range is 51~61x.







PERs/FY21E earnings (₩B)
Earnings
PER (x)


Big Hit (12M lower)
75.0
60.92


Big Hit (12M mid)
82.5
55.38


Big Hit (12M upper)
90.0
50.77

Source: KRX &amp; FnGuide

At the mid-level (₩82.5B), the 12M PER range on the indicative price band is 43~55x, which is acceptably higher than the three direct valuation peers.But things can get crazy once we see the same pattern as the previous two IPOs (SKBP and Kakao G). At 2x the upper end, 12M PER will soar to 111x, which is about 3x the local peer average.











12M PER (₩B)
12M PER (x)
Price
MC
TP
Δ
Coverage


SM Entertainment Co Ltd
28.78
₩37,950
891.1
₩46,800
23.32%
10


YG Entertainment Inc
45.40
₩58,500
1,068.6
₩55,250
-5.56%
8


JYP Entertainment Corp
35.99
₩40,750
1,446.5
₩43,722
7.29%
9

Big Hit (12M mid)

- Lower
43.08
₩105,000
3,553.9
-
-
-


- Upper
55.38
₩135,000
4,569.2
-
-
-


- Upper×2
110.77
₩270,000
9,138.5
-
-
-


- Upper×2×1.3
144.00
₩351,000
11,880.0
-
-
-


- Upper×2×1.3×1.3
187.20
₩456,300
15,444.0
-
-
-

Source: KRX &amp; FnGuide



Big Hit Ent. IPO: Valuations & Exit Price Level

Korea/Asia, Events, IPOs, Douglas Research Advisory

Douglas Kim

Korea/Asia, Events, IPOs

Cross Asset Strategy

<div class="content-highlight"><p><strong>It has been reported in the past few days that <a href="http://www.koreaninvestors.com/?p=12175" target="_blank" rel="noopener">NPS</a> is likely to put a greater emphasis on ESG (environmental, social, &amp; governance) based investing for Korean stocks and bonds starting 2021. </strong>NPS has currently given a mandate to a company to help NPS to apply ESG based investment system. The ESG evaluations are expected to aid NPS to actively exercise shareholder rights and also to carry out negative screening of stocks.</p></div><h3>Implications of NPS Incorporating More ESG Criteria on Domestic Investments (Bonds &amp; Stocks)</h3><ul>
<li>Negative Impact on VICE industries </li>
<li>Positive Impact on Renewable Energy Industries</li>
<li>Negative Impact on Coal &amp; Oil Industries</li>
<li>Greater Representation of Women in Senior Management Team/BOD</li>
</ul>

It has been reported in the past few days that NPS is likely to put a greater emphasis on ESG (environmental, social, &amp; governance) based investing for Korean stocks and bonds starting 2021. NPS has currently given a mandate to a company to help NPS to apply ESG based investment system. The ESG evaluations are expected to aid NPS to actively exercise shareholder rights and also to carry out negative screening of stocks.Implications of NPS Incorporating More ESG Criteria on Domestic Investments (Bonds &amp; Stocks)
Negative Impact on VICE industries 
Positive Impact on Renewable Energy Industries
Negative Impact on Coal &amp; Oil Industries
Greater Representation of Women in Senior Management Team/BOD


NPS - Greater Emphasis of ESG Based Investing for Korean Stocks & Bonds Starting 2021

<p>The Korean government unveiled the specifics of the Korean version of the New Deal initiative.</p><p>First, we will have a government-backed ₩20tril (US$17bil) fund, ₩3tril of which will come directly from the government (tax money) with an additional ₩4tril from state-run financial institutions. The remaining ₩13tril will come from the private sector and the public.</p><p>Now, what's noteworthy is that we will see a set of new indices (designed by the KRX) specifically tracking the companies directly related to the New Deal Initiative.</p>

The Korean government unveiled the specifics of the Korean version of the New Deal initiative.First, we will have a government-backed ₩20tril (US$17bil) fund, ₩3tril of which will come directly from the government (tax money) with an additional ₩4tril from state-run financial institutions. The remaining ₩13tril will come from the private sector and the public.Now, what's noteworthy is that we will see a set of new indices (designed by the KRX) specifically tracking the companies directly related to the New Deal Initiative.

Korea-New Deal Index: Constituents, Weights, & Market Reaction

<p>Big Hit Entertainment ("BHE") is getting ready to complete its IPO in the Korean stock market in early October. This is the second largest IPO in Korea this year after SK Biopharm. The IPO price range of the Big Hit Entertainment is between 105,000 won to 135,000 won. The IPO base deal size is from $634 million to $816 million. The expected market cap after the IPO is from 3.8 trillion won to 4.9 trillion won. The bookbuilding for the institutional ivnestors starts on September 24th.</p><p>Excluding YG Plus, Naver, and Kakao as comps and including only JYP Enter and YG Enter as comps, the average EV/EBITDA multiple would decline to 33x, which is lower than the bankers' EV/EBITDA valuation multiple of 42.4x. Moreover, it may be more appropriate to include S.M. Entertainment in the comps as well. The bankers probably excluded S.M. Entertainment as one of the comps due to its relatively low valuation multiples.</p><div class="content-highlight"><p><strong>It is time to separate the wheat from the chaff among the large cap Korean IPOs in 2020.</strong> SK Biopharm has performed very well post its IPO and it is highly likely that Kakao Games IPO will also have an excellent performance post its IPO next week. Thus, <strong>SK Biopharm</strong> and <strong>Kakao Games</strong> are the wheat of the large cap Korean IPOs. However, mainly due to lofty valuations and over-reliance on the BTS, the <strong>Big Hit Entertainment</strong> IPO is likely to become the chaff.</p></div>

Big Hit Entertainment ("BHE") is getting ready to complete its IPO in the Korean stock market in early October. This is the second largest IPO in Korea this year after SK Biopharm. The IPO price range of the Big Hit Entertainment is between 105,000 won to 135,000 won. The IPO base deal size is from $634 million to $816 million. The expected market cap after the IPO is from 3.8 trillion won to 4.9 trillion won. The bookbuilding for the institutional ivnestors starts on September 24th.Excluding YG Plus, Naver, and Kakao as comps and including only JYP Enter and YG Enter as comps, the average EV/EBITDA multiple would decline to 33x, which is lower than the bankers' EV/EBITDA valuation multiple of 42.4x. Moreover, it may be more appropriate to include S.M. Entertainment in the comps as well. The bankers probably excluded S.M. Entertainment as one of the comps due to its relatively low valuation multiples.It is time to separate the wheat from the chaff among the large cap Korean IPOs in 2020. SK Biopharm has performed very well post its IPO and it is highly likely that Kakao Games IPO will also have an excellent performance post its IPO next week. Thus, SK Biopharm and Kakao Games are the wheat of the large cap Korean IPOs. However, mainly due to lofty valuations and over-reliance on the BTS, the Big Hit Entertainment IPO is likely to become the chaff.

Big Hit Entertainment IPO Preview (Time to Separate the Wheat from the Chaff)

South Korea

Naver Corp. provides Internet site with web portal services, such as search engine, online game and content development.  The Company also offers marketing service through text and banner advertisement.

Price Gauge
52-week Range	0.00 - 0.00
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Naver Corp (035420 KS)

LINE: The Zombie Twilight Begins

LINE

Travis Lundy

Big Hit Ent. IPO: Valuations & Exit Price Level

Big Hit IPO book opened ???

Sanghyun Park

NPS - Greater Emphasis of ESG Based Investing for Korean Stocks & Bonds Starting 2021

It has been reported in the past few days that NPS is likely to put a greater emphasis on ESG (environmental, social, & governance) based...

Douglas Kim

Korea-New Deal Index: Constituents, Weights, & Market Reaction

The Korean government unveiled the specifics of the Korean version of the New Deal initiative.

Sanghyun Park

Big Hit Entertainment IPO Preview (Time to Separate the Wheat from the Chaff)

Excluding YG Plus, Naver, and Kakao as comps and including only JYP Enter and YG Enter as comps, the average EV/EBITDA multiple would decline to...

Douglas Kim

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)